Airbnb Flourishes in Israel as Local Hoteliers Fume

In the last three years the number of rooms in Israel listed on Airbnb has shot up from 900 to 13,000, and most of them cost a lot less for than a typical hotel.

airbnb

This is the second time Sven, a 40-year-old resident of Berlin, has visited Israel. I met him on the beach in Tel Aviv, the city he has fallen in love with, where he is enjoying the sun and the calm just before the start of the summer vacation. Like his first visit to Israel, he made sure to buy a plane ticket months in advance to save money — it cost him only about $320 — but decided to forego a hotel room.

He would like to take a week-long vacation, which makes staying in a hotel prohibitively expensive — about $300 a night in Tel Aviv, he estimates. So, instead, he got accommodations through Airbnb, which cost him only $110 a night. Sven says he doesn’t need someone to make his bed or prepare his breakfast. The apartment he is renting has a kitchen and he makes coffee and an egg in the morning.

Airbnb is no longer a trend or a novelty. It is now a major change in the global lodging industry – and the Israel Hotel Association, similar to its counterparts all over the world, wants to fight back. A month ago, Eli Gonen, the president of the IHA, sent a request to Tel Aviv Mayor Ron Huldai demanding he regulate the matter of renting out homes to tourists. “Developers and hotel owners invest hundreds of millions of shekels in building new hotels, tens of millions of shekels in renovations and operating them – and need to deal with the black market business of renting out rooms, which do not meet any criteria,” wrote Gonen.

He told Huldai that in 2010 the city, in cooperation with the Tourism Ministry, assembled developers to encourage the construction of new hotels. Indeed, a large number of new hotel rooms have been built since then, with thousands more underway. Now they are facing unfair competition and a black market economy, he says. Further growth in the number of "illegal apartments" will bring the hotel projects in the city to a halt, warns Gonen.

'Make them pay taxes'

The hoteliers' fears are nothing new. In early 2013, the IHA asked the Israel Tax Authority to enforce tax laws for those who rent out their homes to tourists. At the time, the IHA said they were not looking to take revenge on those who rent out their homes and “steal” their customers, but are only asking for equal and fair competition. This includes business licensing requirements, filing tax returns and reporting income - according to the law. We are watching a new lodging industry grow that makes millions of dollars without paying taxes, said the IHA.

The pressure on the hotels is clear. In recent years they have lost a significant share of tourist overnight stays in favor of short-term rentals such as Airbnb.

Airbnb’s own figures, which TheMarker received, show over 115,000 tourists stayed in Israel in such rooms booked through its website in 2014 — a 48% increase compared to 2013. If we take into account that the average tourist spends four nights in Israel, then this is almost half a million overnight rentals which the hotels have lost out on. In other words, Airbnb has grabbed a 5% share of tourist rooms in 2014.

This worries hoteliers even more because even though the number of tourists entering Israel has been increasing, the number of hotel overnight stays has not. In 2008, 2.6 million tourists came to Israel and spent 10.2 million nights in hotels. In 2014, by comparison, the number of tourists was slightly higher, but they spent only 9.18 million nights in hotels.

Such differences have a variety of explanations. The tourists may be spending fewer days in Israel in general, or they might be sleeping in places like Bethlehem in the Palestinian Authority, which are cheaper. But most likely rooms such as those rented through Airbnb are the main cause.

The “sharing economy" is picking up steam all over the world.

Airbnb has been growing annually in Israel. At the beginning of 2012 there were 900 rooms in Israel registered on the website, jumping to 4,000 at the start of 2013, and doubling in 2014. Today there are some 13,000 rooms listed. According to the hotel association, half of these rooms are in Tel Aviv.

In comparison, the number of hotel rooms in Israel is about 47,000. The IHA says Airbnb and similar sites cost the city and the state 175 million shekels a year in unpaid taxes.

According to Airbnb, tourists from 124 countries rented rooms in Israel through their site in 2014. Most came from the United States, France, Germany, Russia and Britain.

Just as Airbnb is a hit with incoming tourists it is also a big hit with Israelis traveling abroad. In 2014, Israelis made some 49,000 bookings all over the world through Airbnb — an 87% increase over 2013.

These numbers – for both incoming and outgoing tourism – are expected to rise even more, in light of the global growth of the “sharing economy," which, in Israel, is best represented by Airbnb. A month ago, the company appointed Imri Galai to be its marketing and business development head in Israel, with the goal of making it an even stronger brand here.

Helps pay the rent

Airbnb says the people around the world who sublet their apartments through the company are “normative people,” who use the money they make from the rentals to pay their bills. The company says 81% of the hosts rent only the home they live in; more than half of these say the rental money makes it affordable for them to remain in their homes.

This holds true in Israel, too. Dafna, 39, rents out her large and expensive Tel Aviv apartment via Airbnb. “I always have someone who wants to sleep in it a few days a month. When it happens, I pack a bag and go to friends or my parents for a few days, whatever works out. For the four days I am less comfortable I can earn $600 — almost half my monthly rent,” she says.

Other hosts do it more regularly. “I have an extra room in my house that I rent out, and I keep an organized calendar of guests. It’s a second job for me,” says Hagai from Jerusalem. “Sometimes the guests arrive in the middle of the night, so I need to get up and be nice and greet them with a smile, and sometimes it happens that a couple leaves early in the morning and my next check is already on the way, so I need to clean and arrange quickly. Everything needs to be organized so the tourist will be satisfied and write good comments about me on the site. That is how my ratings rise and my position in search is higher, and more tourists are interested in me.”

In Airbnb's survey, 91% of guests said that they are looking for the experience of living like a local on their trip. Some 75% of the rooms listed on the website around the world are located outside hotel districts, which allows the guests to discover new neighborhoods off the beaten tourist track.

Hotels can't compete

It is not just the desire to feel like a local and stay in less touristy places that leads people to rent through Airbnb. As in the case of Sven, it is usually a matter of price — and the hotels simply cannot compete.

Of course, the hoteliers are infuriated by this argument: “How can you compare prices between a hotel and a rental apartment?" asks a senior hotel executive angrily. “How can I match the prices of my hotels to something so completely different? We employ workers, have a business license, we pay [music royalties], bring in kashrut supervisors and provide security. There is no way we can make our prices comparable to those of Airbnb prices or any other apartment rental site,” he added.

Israeli hotels really are hard pressed to compete with Airbnb on price, but they still provide a similar basic product: A pleasant room to spend the night. Sometimes that's all the tourist is looking for, and the rest does not matter.